CB clamps down on debt collectors harassing customers
Using a leased vehicle and constantly in fear that it would be seized on the road by tough debt collectors, if your payments are not made on time? Not to worry.
Responding to a public outcry over outsourcing practices of Sri Lanka’s Licensed Finance Companies (LFCs) specially harassing customers in debt recovery, the Central Bank (CB) has issued tough guidelines this week restricting such functions.
Although the outsourcing can bring cost savings and other benefits for LFCs, it may increase their risk profile due to failure of an outsourcing service provider in providing the service, leading to reputation, compliance and operational risks, a senior CB official told the Business Times.
According to directions issued by the CB outsourcing of nine major functions/operations/activities of LFCs have been barred while imposing tough regulations on the outsourcing of marketing and recovery functions.
Marketing and recovery functions could be outsourced by LFCs subject to ensuring that the staff of the outsourcing service provider dealing directly with customers are properly trained to handle their responsibilities with care and prudence.
If the CB receives any written/verbal complaints against the conduct of any outsourcing service provider, it has the right to suspend such outsourcing arrangements upon further investigations.
Separately several customers told the Business Times that they have been threatened to repay their outstanding payments or face the threat of property, vehicles and other items being seized by organisations acting as collectors by certain LFCs .
The CB has already issued guidelines to prevent such practices under the Financial Customer Protection Framework for all such companies.
Employees and appointed agents have been directed to avoid harassing customers, using abusive debt collection practices, disclosing customer information to others giving false or misleading information about products/services and unduly influence customers or the public to buy or get involved in the LFC products/services.
The CB has directed that LFCs have been barred from outsourcing of services of mobilising of deposits and withdrawals, assets and liability management, compliance function, customer due diligence and know your customer procedure, treasury and risk management, strategic planning and decision making, sanctioning of loans and any other functions/operations or activities determined by the Monetary Board.
Welcoming the move, Rajiv Gunawardena, Chief Executive Officer at Asia Asset Finance PLC told the Business Times that finance companies have been compelled to go beyond their core businesses and enter into term financing, microfinance and lending against gold in the face of competition in leasing from banks and a deceleration in vehicle financing .
By end March 2018, total non-performing loans LFCs (six months arrears) increased to 5.8 per cent of assets, from 4.9 per cent in 2017, CB data revealed.
The recovery of outstanding loans has become a difficult task due to the present economic situation and lack of income generating avenues for the public, he said adding that there will not be any issues in debt collection if outservicing arrangements are made with service providers having specialised resources, capacity and expertise.
Outsourcing the company’s debt collection responsibilities to a reputable commercial debt collection agency is financially a far better solution than trying to manage the debt collection process in-house, he added.